NatWest Group(NWG)2024-10-25 11:07Financial Data and Key Metrics Changes - The company upgraded its full-year income and returns guidance, expecting total income, excluding notable items, to be around GBP 14.4 billion, with a return on tangible equity greater than 15% [2][15] - For the first nine months, customer lending grew by GBP 8.1 billion to GBP 367 billion, while customer deposits increased by GBP 8.3 billion to GBP 427 billion [2][3] - Operating profit for the first nine months was GBP 4.7 billion, with attributable profit of GBP 3.3 billion and a return on tangible equity of 17% [5] Business Line Data and Key Metrics Changes - In Commercial & Institutional, lending to mid-market customers grew by GBP 1.5 billion, while corporate lending increased by GBP 3.2 billion [10] - The private bank's assets under management rose by GBP 5.7 billion to GBP 46.5 billion, including GBP 2.2 billion of net new inflows [4] - The existing mortgage book returned to growth, with balances up by GBP 3.8 billion, supported by new lending and the acquisition of a GBP 2.3 billion mortgage portfolio from Metro Bank [9] Market Data and Key Metrics Changes - The group net interest margin increased by 8 basis points to 218 basis points, driven by margin expansion across deposits and funding [8] - Non-interest income grew by 5.1% to GBP 3.8 billion in Q3, with contributions from strong lending and payment fees [7][57] - The company reported a net impairment charge of GBP 245 million for Q3, reflecting a cost of risk of 25 basis points [12] Company Strategy and Development Direction - The company is focused on disciplined growth, bank-wide simplification, and active balance sheet and risk management [2] - The strategic priority includes supporting customers while managing risks effectively, which is reflected in the strong financial performance [2][16] - The company aims to reach a target of GBP 100 billion in climate and sustainable funding by 2025, having already provided GBP 85.4 billion since July 2021 [3] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's momentum and ability to deliver strong shareholder returns, despite expected base rate cuts [16] - The company anticipates further base rate cuts in Q4, reaching 4.75% by year-end, with additional cuts expected in 2025 [8] - Management highlighted the resilience of customers and the strong performance of the loan portfolio, maintaining a low cost of risk [30] Other Important Information - The government has reduced its shareholding from 38% to under 16%, with plans to exit fully by 2025-2026 [5] - The company expects to incur higher operating expenses in Q4 due to severance and property costs, alongside a higher bank levy charge [12] Q&A Session Summary Question: On margins and NatWest Markets - Inquiry about the impact of deposit spreads and the timing of base rate cuts on future margins [17] - Management noted that market conditions have been supportive for NatWest Markets, which has seen a significant increase in capital markets activity [20] Question: Revenue guidance for Q4 - Question regarding the expected decline in revenues sequentially into Q4 and the normalization of other income [24] - Management explained that Q4 income is expected to be lower due to seasonality and anticipated base rate cuts, but overall guidance has been upgraded [26] Question: Cost of risk and Sainsbury's transaction - Inquiry about the cost of risk trends and the potential contribution of the Sainsbury's transaction to P&L [29] - Management confirmed a low cost of risk and indicated that the Sainsbury's acquisition is expected to be RoTE accretive upon completion [31] Question: RWA guidance and loan growth - Questions about RWA guidance for 2025 and confidence in loan growth prospects [35] - Management expressed confidence in mid-single digit loan growth, supported by strong performance in Q3 [36] Question: Deposit repricing lag and customer behavior - Inquiry about the impact of deposit repricing lag in Q3 and customer behavior regarding term deposits [48] - Management acknowledged the lag effects and noted that many customers are renewing into fixed-term accounts [51]